<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to____________
Commission file number 0-9109 Commission file number 0-9110
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
- - - -------------------------------------- --------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
- - - -------------------------------------- --------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
- - - -------------------------------------- --------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
301 West Huntington Drive, Suite 405 285 West Huntington Drive, P.O.Box 808
Arcadia, California 91007 Arcadia, California 91066-0808
- - - -------------------------------------- --------------------------------------
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(818) 574-5550 (818) 574-7223
- - - -------------------------------------- --------------------------------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuers' classes of
common stock, as of the close of business on May 4, 1994:
Santa Anita Realty Enterprises, Inc. Common Stock -11,256,353
Santa Anita Operating Company Common Stock -11,143,853
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Form 10-Q
<TABLE>
<CAPTION>
Index
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION 3
Balance Sheets - March 31, 1994 and December 31, 1993 for
Santa Anita Realty Enterprises, Inc. 4
Santa Anita Operating Company and Subsidiaries 5
Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company and Subsidiaries Combined 6
Statements of Operations - three months ended
March 31, 1994 and 1993
Santa Anita Realty Enterprises, Inc. 7
Santa Anita Operating Company and Subsidiaries 7
Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company and Subsidiaries Combined 7
Statements of Cash Flows - three months ended
March 31, 1994 and 1993
Santa Anita Realty Enterprises, Inc. 8
Santa Anita Operating Company and Subsidiaries 10
Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company and Subsidiaries Combined 11
Notes to Financial Statements 13
Managements' Discussion and Analysis of Financial
Condition and Results of Operations 18
PART II. OTHER INFORMATION 22
SIGNATURES 23
</TABLE>
2.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Form 10-Q
For the Three Months Ended March 31, 1994
(Unaudited)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In June 1993, the Board of Directors of Santa Anita Realty Enterprises, Inc.
("Realty") approved management's recommendation to recapitalize certain assets
of Realty. Pursuant to this recapitalization, in November 1993, Realty entered
into a Purchase and Sale Agreement to sell its multifamily and industrial
operations to a wholly-owned subsidiary, Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock. The transaction was structured into two parts: (1) Realty would sell all
of its apartments and industrial properties to Pacific with the exception of
Realty's interest in the Baldwin Industrial Park joint venture; and (2) Pacific
would enter into a binding agreement to buy Realty's interest in Baldwin
Industrial Park.
As reflected in the accompanying financial statements, on February 18, 1994,
Realty completed the first part of this transaction by selling to Pacific ten
multifamily properties, containing 2,654 apartment units, located in Southern
California, the Pacific Northwest, and Texas and three industrial properties,
containing an aggregate of 185,000 leasable square feet of industrial space,
located in the State of Washington and Realty's corporate headquarters building
and related assets.
The accompanying balance sheets as of March 31, 1994 and December 31, 1993 of
Realty, Santa Anita Operating Company and Subsidiaries ("Operating Company"),
and Realty and Operating Company combined, the statements of operations for the
three months ended March 31, 1994 and 1993, and the related statements of cash
flows for the three months ended March 31, 1994 and 1993, were prepared by
Realty and Operating Company and are unaudited. In the opinion of the management
of each company, the accompanying financial statements include all adjustments
deemed necessary for a fair presentation.
Operating Company has adopted an accounting practice whereby the revenues
associated with thoroughbred horse racing at Santa Anita Racetrack are reported
as they are earned. Costs and expenses associated with thoroughbred horse racing
revenues are charged against income in those interim periods in which the
thoroughbred horse racing revenues are recognized. Other costs and expenses are
recognized as they actually occur throughout the year.
The following financial statements should be read in conjunction with the
accompanying notes.
3.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1994 1993
-------------- -------------
ASSETS
<S> <C> <C>
Real estate assets
Santa Anita Racetrack, less accumulated depreciation of
$19,016 ,000 and $18,670,000, respectively $7,373,000 $6,997,000
Commercial properties, less accumulated depreciation of
$34,428,000 and $42,503,000, respectively (Note 6) 128,003,000 221,876,000
Investments in unconsolidated joint ventures (Note 1) 3,178,000 3,616,000
Real estate loans and advances receivable 22,537,000 22,084,000
-------------- --------------
161,091,000 254,573,000
Cash 20,581,000 7,633,000
Accounts receivable 2,220,000 4,305,000
Due from a former officer 81,000 81,000
Prepaid expenses and other assets (Note 6) 11,202,000 4,624,000
Due from Operating Company 5,143,000 469,000
-------------- --------------
$200,318,000 $271,685,000
============== ==============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Real estate loans payable (Note 6) $83,518,000 $106,731,000
Other loans payable (Note 6) 33,488,000 77,913,000
Accounts payable 2,441,000 3,678,000
Other liabilities 10,663,000 15,346,000
Dividends payable 3,788,000 3,788,000
-------------- -------------
133,898,000 207,456,000
-------------- -------------
Minority interest in consolidated joint ventures (4,636,000) (4,590,000)
Shareholders' equity
Preferred stock; $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,256,353 and
11,256,353 shares, respectively 1,125,000 1,125,000
Additional paid-in capital 117,084,000 117,084,000
Retained earnings (deficit) (47,153,000) (49,390,000)
-------------- -------------
71,056,000 68,819,000
-------------- -------------
$200,318,000 $271,685,000
============== =============
</TABLE>
See Accompanying notes.
4.
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1994 1993
-------------- -------------
ASSETS
<S> <C> <C>
Current assets
Cash $961,000 $9,695,000
Short-term investments, at cost (approximates market) 27,208,000 4,693,000
Accounts receivable 2,157,000 2,789,000
Due from officers and a former officer 437,000 393,000
Prepaid expenses and other assets 610,000 1,041,000
-------------- -------------
Total current assets 31,373,000 18,611,000
-------------- -------------
Investment in common stock of Realty 2,122,000 2,179,000
Property, plant and equipment, at cost
Machinery and other equipment 22,299,000 21,943,000
Leasehold improvements 20,976,000 20,976,000
-------------- -------------
43,275,000 42,919,000
Less accumulated depreciation (22,734,000) (21,088,000)
-------------- -------------
20,541,000 21,831,000
-------------- -------------
$54,036,000 $42,621,000
============== =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable $14,572,000 $10,070,000
Other liabilities 13,827,000 10,117,000
Other loans payable 742,000 726,000
-------------- -------------
Total current liabilities 29,141,000 20,913,000
-------------- -------------
Other loans payable 2,337,000 2,528,000
Deferred revenues 1,533,000 2,872,000
Due to Realty 5,143,000 469,000
Deferred income taxes 3,565,000 3,565,000
-------------- -------------
41,719,000 30,347,000
-------------- -------------
Shareholders' equity
Preferred stock; $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,143,853 and
11,140,853 shares, respectively 1,114,000 1,114,000
Additional paid-in capital 20,596,000 20,592,000
Retained earnings (deficit) (9,393,000) (9,432,000)
-------------- -------------
12,317,000 12,274,000
-------------- -------------
$54,036,000 $42,621,000
============== =============
</TABLE>
See Accompanying notes.
5.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1994 1993
-------------- -------------
ASSETS
<S> <C> <C>
Real estate assets
Santa Anita Racetrack, less accumulated depreciation of
$19,016,000 and $18,670,000, respectively $7,373,000 $6,997,000
Commercial properties, less accumulated depreciation of
$32,961,000 and $41,079,000, respectively (Note 6) 123,002,000 216,832,000
Investments in unconsolidated joint ventures (Note 1) 3,178,000 3,616,000
Real estate loans and advances receivable 22,537,000 22,084,000
-------------- -------------
156,090,000 249,529,000
Cash 21,542,000 17,328,000
Short-term investments, at cost (approximates market) 27,208,000 4,693,000
Accounts receivable 4,377,000 7,094,000
Due from officers and a former officer 518,000 474,000
Prepaid expenses and other assets (Note 6) 13,466,000 7,019,000
Property, plant and equipment, at cost, less accumulated
depreciation of $22,734,000 and $21,088,000, respectively 20,541,000 22,129,000
-------------- -------------
$243,742,000 $308,266,000
============== =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Real estate loans payable (Note 6) $83,518,000 $106,731,000
Other loans payable (Note 6) 36,567,000 81,167,000
Accounts payable 16,976,000 13,748,000
Other liabilities 24,490,000 25,463,000
Dividends payable 3,788,000 3,788,000
Deferred revenues 1,533,000 2,872,000
Deferred income taxes 3,565,000 3,565,000
-------------- -------------
170,437,000 237,334,000
-------------- -------------
Minority interest in consolidated joint ventures (4,636,000) (4,590,000)
Shareholders' equity
Preferred stock; $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,143,853 and
11,140,853 shares, respectively 2,227,000 2,227,000
Additional paid-in capital 134,615,000 134,554,000
Retained earnings (deficit) (58,901,000) (61,259,000)
-------------- -------------
77,941,000 75,522,000
-------------- -------------
$243,742,000 $308,266,000
============== =============
</TABLE>
See Accompanying notes.
6.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(000's Omitted Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1994
----------------------------------------------
Operating Adjustments
Company & and
Realty Subsidiaries Eliminations Combined
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 2)
Horse racing (Note 5) $30,239 $30,239
Food and beverage 4,099 4,099
Rental property (Note 6) $15,433 ($7,503)(a) 7,930
Interest and other 370 128 (39)(b) 459
----------------------- ----------
15,803 34,466 42,727
----------------------- ----------
Costs and expenses (Note 2)
Direct horse racing operating costs 20,917 20,917
Food and beverage cost of sales 1,195 1,195
Rental property operating expenses
(Note 6) 3,118 3,118
Depreciation and amortization
(Note 6) 1,946 1,646 (43)(c) 3,549
General and administrative (Note 6) 1,024 3,060 4,084
Interest (Note 6) 2,940 106 3,046
Loss from unconsolidated
joint ventures 451 451
Minority interest in earnings of
consolidated joint ventures (Note 6) 260 260
Rental expense to Realty 7,503 (7,503)(a)
----------------------- ----------
9,739 34,427 36,620
----------------------- ----------
Income (loss) before
income taxes 6,064 39 6,107
Benefit for income taxes
----------------------- ----------
Net income (loss) (Notes 3 & 5) $6,064 $39 $6,107
======================= ==========
Weighted average number of
common shares outstanding 11,256 11,141 11,141
======================= ==========
Net income (loss) per
common share (Notes 3 & 5) $.54 $.00 $.55
======================= ==========
Dividends declared per
common share (Note 4) $.34 $.34
========= ==========
<CAPTION>
Three Months Ended March 31, 1993
----------------------------------------------
Operating Adjustments
Company & and
Realty Subsidiaries Eliminations Combined
----------------------------------------------
(Restated)
<S> <C> <C> <C> <C>
Revenues (Note 2)
Horse racing (Note 5) $29,076 $29,076
Food and beverage 4,468 4,468
Rental property (Note 6) $16,209 ($6,913)(a) 9,296
Interest and other 2,667 137 (39)(b) 2,765
------------------------ ---------
18,876 33,681 45,605
------------------------ ---------
Costs and expenses (Note 2)
Direct horse racing operating costs 20,613 20,613
Food and beverage cost of sales 1,229 1,229
Rental property operating expenses
(Note 6) 3,418 3,418
Depreciation and amortization
(Note 6) 2,390 1,564 (43)(c) 3,911
General and administrative (Note 6) 866 3,314 4,180
Interest (Note 6) 3,277 145 3,422
Loss from unconsolidated
joint ventures 443 443
Minority interest in earnings of
consolidated joint ventures (Note 6) 6 6
Rental expense to Realty 6,913 (6,913)(a)
------------------------ ---------
10,400 33,778 37,222
------------------------ ---------
Income (loss) before
income taxes 8,476 (97) 8,383
Benefit for income taxes (1,458) (1,458)
------------------------ ---------
Net income (loss) (Notes 3 & 5) $9,934 ($97) $9,841
======================== =========
Weighted average number of
common shares outstanding 11,256 11,141 11,141
======================== =========
Net income (loss) per
common share (Notes 3 & 5) $.88 $(.01) $.88
======================== =========
Dividends declared per
common share (Note 4) $.34 $.34
========== =========
</TABLE>
(a) to eliminate inter-entity rent
(b) to eliminate inter-entity dividends
(c) to eliminate depreciation resulting from inter-entity sales
See accompanying notes.
7.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
(Unaudited)
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $6,064,000 $9,934,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 1,946,000 2,390,000
Minority interest in earnings of consolidated
joint ventures 260,000 6,000
Equity in losses of unconsolidated
joint ventures 451,000 443,000
Net decrease (increase) in certain other assets 2,900,000 (5,668,000)
Net decrease in certain other liabilities (587,000) (18,000)
-------------- --------------
Net cash provided by operating activities 11,034,000 7,087,000
-------------- --------------
Cash flows from investing activities:
Proceeds from disposition of Multifamily and Industrial
Operations 44,425,000 --
Origination of loans and advances receivable (453,000) (229,000)
Additions and improvements to real estate assets (6,067,000) (3,039,000)
-------------- --------------
Net cash provided by (used in) investing activities 37,905,000 (3,268,000)
-------------- --------------
Cash flows from financing activities:
Proceeds from real estate loans payable 21,077,000 4,827,000
Repayment of real estate loans payable -- (246,000)
Repayment of other loans payable (44,425,000) --
Net increase in due from Operating Company (4,674,000) (5,117,000)
Net (decrease) increase in certain other liabilities (3,836,000) 2,379,000
Dividends paid (3,827,000) (3,826,000)
Distributions to minority interest in
consolidated joint ventures, net (306,000) (313,000)
-------------- --------------
Net cash used in financing activities (35,991,000) (2,296,000)
-------------- --------------
Net increase in cash and cash equivalents 12,948,000 1,523,000
Cash and cash equivalents at beginning of year 7,633,000 1,671,000
-------------- --------------
Cash and cash equivalents at March 31 $20,581,000 $3,194,000
============== ==============
</TABLE>
See accompanying notes.
8.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Three Months Ended March 31,
Supplemental disclosure of noncash investing and financing activities:
The disposition of the Multifamily and Industrial Operations as described in
the notes to the financial statements involve the transfer of the following
noncash items:
<TABLE>
<S> <C>
Real estate assets $98,305,000
Other assets $475,000
Real estate loans payable $44,290,000
Other liabilities $302,000
</TABLE>
See accompanying notes.
9.
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
(Unaudited)
------------------------------
1994 1993
-------------- --------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $39,000 ($97,000)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 1,646,000 1,564,000
Deferred income taxes -- (7,000)
Net decrease in certain other assets 1,019,000 453,000
Net increase in certain other liabilities 6,873,000 13,488,000
------------- ------------
Net cash provided by operating activities 9,577,000 15,401,000
------------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment (356,000) (636,000)
Sale of Realty stock 57,000 --
-------------- ------------
Net cash used in investing activities (299,000) (636,000)
-------------- ------------
Cash flows from financing activities:
Repayment of other loans payable (175,000) (161,000)
Net increase in due to Realty 4,674,000 5,117,000
Proceeds from stock issued in connection with
exercise of stock options 4,000 --
------------- ------------
Net cash provided by financing activities 4,503,000 4,956,000
------------- ------------
Net increase in cash and cash equivalents 13,781,000 19,721,000
Cash and cash equivalents at beginning of year 14,388,000 9,976,000
------------- ------------
Cash and cash equivalents at March 31 $28,169,000 $29,697,000
============= ============
</TABLE>
See accompanying notes.
10.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
(Unaudited)
------------------------------
1994 1993
-------------- --------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $6,107,000 $9,841,000
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 3,549,000 3,911,000
Minority interest in earnings of consolidated
joint ventures 260,000 6,000
Equity in losses of unconsolidated
joint ventures 451,000 443,000
Deferred income taxes -- (7,000)
Net decrease (increase) in certain other assets 3,919,000 (5,215,000)
Net increase in certain other liabilities 6,286,000 13,470,000
-------------- --------------
Net cash provided by operating activities 20,572,000 22,449,000
-------------- --------------
Cash flows from investing activities:
Proceeds from disposition of Multifamily and Industrial
Operations 44,425,000 --
Origination of loans and advances receivable (453,000) (229,000)
Additions to property, plant and equipment (356,000) (636,000)
Additions and improvements to real estate assets (6,067,000) (3,039,000)
-------------- --------------
Net cash provided by (used in) investing activities 37,549,000 (3,904,000)
-------------- --------------
Cash flows from financing activities:
Proceeds from real estate loans payable 21,077,000 4,827,000
Repayment of real estate loans payable -- (246,000)
Repayment of other loans payable (44,600,000) (161,000)
Distributions to minority interest in
consolidated joint ventures, net (306,000) (313,000)
Dividends paid (3,788,000) (3,787,000)
Net (decrease) increase in certain other liabilities (3,836,000) 2,379,000
Proceeds from stock issued in connection with
exercise of stock options 61,000 --
-------------- --------------
Net cash (used in) provided by financing activities (31,392,000) 2,699,000
-------------- --------------
Net increase in cash and cash equivalents 26,729,000 21,244,000
Cash and cash equivalents at beginning of year 22,021,000 11,647,000
-------------- --------------
Cash and cash equivalents at March 31 $48,750,000 $32,891,000
============== ==============
</TABLE>
See accompanying notes.
11.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Three Months Ended March 31,
Supplemental disclosure of noncash investing and financing activities:
The disposition of the Multifamily and Industrial Operations as described in
the notes to the financial statements involve the transfer of the following
noncash items:
<TABLE>
<S> <C>
Real estate assets $98,305,000
Other assets $475,000
Real estate loans payable $44,290,000
Other liabilities $302,000
</TABLE>
See accompanying notes.
12.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - March 31, 1994
Note (1) Realty's investment in unconsolidated joint ventures include
investments in the following commercial real estate ventures:
<TABLE>
Name Ownership Project
------------ --------------- -----------------
<S> <C> <C>
Joppa Associates 33-1/3% Retail
H-T Associates 50% Regional Mall
</TABLE>
Unaudited combined condensed financial statement information for
unconsolidated joint ventures as of March 31, and for the three months
ended March 31, is as follows:
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
<S> <C> <C>
Real estate assets $213,302,000 $216,699,000
================= =================
Liabilities
Advances from Realty $8,584,000 $7,261,000
Other 197,884,000 202,014,000
------------------ ----------------
$206,468,000 $209,275,000
================== ================
Partners' equity
Realty $3,178,000 $5,482,000
Others (642,000) 1,942,000
------------------ ----------------
$2,536,000 $7,424,000
================== ================
Revenues $5,245,000 $4,457,000
================== ================
Net loss
Realty ($451,000) ($443,000)
Others (395,000) (275,000)
------------------ ----------------
($846,000) ($718,000)
================== ================
</TABLE>
Note (2) Operating Company has adopted an accounting practice whereby the
revenues associated with thoroughbred horse racing at Santa Anita
Racetrack are reported as they are earned. Costs and expenses
associated with thoroughbred horse racing revenues are charged against
income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as
they actually occur throughout the year.
Note (3) The separate results of operations and the separate earnings per share
of the two companies cannot usually be added together to total the
combined results of operations and earnings per share because of
adjustments and elimination's arising from interentity transactions.
Note (4) Realty conducts its operations as regards to dividend and other
requirements in order to qualify as a REIT on a quarterly basis. Realty
regularly tests its financial results for compliance with REIT
statutes.
13.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note (5) Operating Company's year-ago results for the first quarter have been
restated to reflect a retroactive reduction in the fees due to the
State of California, which was previously reflected in the second
quarter of 1993. As a result of this restatement, the first quarter of
1993 now reflects a $517,000 increase in wagering revenues and net
income.
Note (6) Disposition of Multifamily and Industrial Operations
In November 1993, Realty entered into a Purchase and Sale Agreement to
sell its multifamily and industrial operations to Pacific Gulf
Properties Inc. ("Pacific"), in conjunction with Pacific's proposed
public offering of common stock and debentures. The transaction was
structured into two parts: (1) Realty would sell all of its apartments
and industrial properties to Pacific with the exception of Realty's
interest in the Baldwin Industrial Park joint venture; and (2) Pacific
would enter into a binding agreement to buy Realty's Interest in
Baldwin Industrial Park.
On February 18, 1994, Realty completed the first part of this
transaction by selling to Pacific ten multifamily properties,
containing 2,654 apartment units, located in Southern California, the
Pacific Northwest, and Texas and three industrial properties,
containing an aggregate of 185,000 leasable square feet of industrial
space, located in the State of Washington (the "Transferred
Properties"). Realty's corporate headquarters building and related
assets were also acquired by Pacific.
Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy
Realty's interest in Baldwin Industrial Park subject to satisfaction of
certain conditions, for a minimum price of $8.9 million payable in
additional shares of Pacific common stock, with the final price
dependent upon completion of negotiations with the other owners of
Baldwin Industrial Park and an appraisal process. Management believes
the sale of Realty's interest in Baldwin Industrial Park will be
completed in the second half of 1994. Pacific has issued to Realty non-
refundable letters of credit totaling $2.5 million as of March 31, 1994
to secure its obligation to acquire Realty's interest in Baldwin
Industrial Park and pay for the corporate headquarters building and
other assets related to the Transferred Properties.
As a result of the $10,974,000 loss recorded on the transaction in the
fourth quarter of 1993, the sale of the Transferred Properties to
Pacific on February 18, 1994 resulted in no gain or loss being
recognized on the transaction. In consideration of the sale of the
Transferred Properties, Realty received approximately $44.4 million in
cash and 149,900 shares of the common stock of Pacific. In addition,
Realty was relieved of approximately $44.3 million of mortgage debt on
the Transferred Properties. Realty will also receive, at the time the
acquisition of Baldwin Industrial Park is completed, up to $1.2 million
in additional common stock of Pacific as consideration for its
corporate headquarters and other net assets related to the Transferred
Properties. If the Baldwin Industrial Park portion of the transaction
described above does not occur, an additional loss will be recognized
by Realty in 1994. The loss could approximate $5,900,000 depending upon
whether the full $2.5 million in letters of credits are drawn.
14.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note (6) Disposition of Multifamily and Industrial Operations (continued)
The following unaudited pro forma condensed balance sheet of Realty is
presented as if both parts of the transaction had occurred on March 31,
1994. The unaudited pro forma condensed balance sheet is not
necessarily indicative of what the actual financial position of Realty
would have been at March 31, 1994 nor does it purport to represent the
future financial position of Realty.
<TABLE>
<CAPTION>
March 31, 1994
------------------------------------------------------
Realty Realty
Historical Pro Forma
Cost Basis Adjustments (a) (Unaudited)
-------------------- ----------------- ----------------
<S> <C> <C> <C>
Real estate assets
Santa Anita Racetrack, net $7,373,000 -- $7,373,000
Commercial properties, net 128,003,000 (8,915,000) 119,088,000
Investments in unconsolidated
joint ventures 3,178,000 -- 3,178,000
Real estate loans and
advances receivable 22,537,000 -- 22,537,000
-------------------- ----------------- ----------------
161,091,000 (8,915,000) 152,176,000
-------------------- ----------------- ----------------
Cash 20,581,000 (688,000) 19,893,000
Other assets (b)(c) 18,646,000 2,611,000 21,257,000
-------------------- ----------------- ----------------
$200,318,000 ($6,992,000) $193,326,000
==================== ================= ================
Real estate loans payable $83,518,000 ($9,441,000) $74,077,000
Other loans payable 33,488,000 -- 33,488,000
Other liabilities 16,892,000 (431,000) 16,461,000
-------------------- ----------------- ----------------
133,898,000 (9,872,000) 124,026,000
-------------------- ----------------- ----------------
Minority interest in consolidated
joint ventures (4,636,000) 2,880,000 (1,756,000)
Shareholders' equity 71,056,000 -- 71,056,000
-------------------- ----------------- ----------------
$200,318,000 ($6,992,000) $193,326,000
==================== ================= ================
</TABLE>
The accompanying notes are an integral part of this pro forma balance
sheet.
15.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note (6) Disposition of Multifamily and Industrial Operations (continued)
Notes:
(a) Reflects the disposition of the assets and liabilities of the
Baldwin Industrial Park as if the transaction had occurred on March
31, 1994.
(b) The historical balance at March 31, 1994 includes Realty's
investment in Pacific stock of $2,738,000 and a receivable from
Pacific of $1,200,000 relating to the consideration for Realty's
corporate headquarters and net other assets related to the
Transferred Properties. The pro forma balance at March 31, 1994
includes Realty's investment in Pacific stock of $12,802,000.
(c) As a result of the February 18, 1994 sale to Pacific, Realty has an
investment in the common shares of Pacific totaling $2,738,000.
Upon completion of Realty's disposition of Baldwin Industrial Park,
assuming a price per share equal to $18.25 (the initial public
offering price of Pacific's common shares) and the minimum price
for Realty's interest in Baldwin Industrial Park and the corporate
headquarters building and certain other assets related to the
Transferred Properties, Realty will receive additional Pacific
stock totaling approximately $10,064,000.
The following unaudited pro forma statements of operations of Realty
are presented as if both parts of the transaction had occurred as of
the beginning of the period presented. The unaudited pro forma
statements of operations are not necessarily indicative of what the
actual results of operations would have been if the entire transaction
had been consummated as of the beginning of the period presented nor do
they purport to represent the results of operations of Realty for any
future period.
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1994
-----------------------------------------------------
Realty Realty
Historical Pro Forma
Cost Basis Adjustments (1) (Unaudited)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues
Rental property $15,433,000 ($3,157,000) $12,276,000
Interest and other (2) 370,000 169,000 539,000
--------------- ----------------- ----------------
15,803,000 (2,988,000) 12,815,000
---------------- ----------------- ----------------
Costs and expenses
Rental property operating
expenses 3,118,000 (1,542,000) 1,576,000
Depreciation and amortization 1,946,000 (538,000) 1,408,000
General and administrative 1,024,000 (203,000) 821,000
Interest and other (3) 2,940,000 (1,080,000) 1,860,000
Losses from unconsolidated
joint ventures 451,000 -- 451,000
Minority interest in earnings of
consolidated joint ventures 260,000 (151,000) 109,000
---------------- ----------------- ----------------
9,739,000 (3,514,000) 6,225,000
---------------- ----------------- ----------------
Net income $6,064,000 $526,000 $6,590,000
================ ================= ================
</TABLE>
The accompanying notes are an integral part of this pro forma statement
of operations
16.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note (6) Disposition of Multifamily and Industrial Operations (continued)
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1993
----------------------------------------------------
Realty Realty
Historical Pro Forma
Cost Basis Adjustments (1) (Unaudited)
---------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues
Rental property $16,209,000 ($4,799,000) $11,410,000
Interest and other (2) 2,667,000 169,000 2,836,000
---------------- ----------------- ----------------
18,876,000 (4,630,000) 14,246,000
---------------- ----------------- ----------------
Costs and expenses
Rental property operating
expenses 3,418,000 (1,865,000) 1,553,000
Depreciation and amortization 2,390,000 (885,000) 1,505,000
General and administrative 866,000 (344,000) 522,000
Interest and other (3) 3,277,000 (1,716,000) 1,561,000
Losses from unconsolidated
joint ventures 443,000 -- 443,000
Minority interest in earnings of
consolidated joint ventures (4) 6,000 149,000 155,000
---------------- ----------------- ----------------
10,400,000 (4,661,000) 5,739,000
Income before income taxes 8,476,000 31,000 8,507,000
Benefit for income taxes (1,458,000) -- (1,458,000)
---------------- ----------------- ----------------
Net income $9,934,000 $31,000 $9,965,000
================ ================= ================
</TABLE>
The accompanying notes are an integral part of this pro forma statement
of operations
Notes:
------
(1) Reflects the operations of the Multifamily and Industrial
Operations directly identifiable with, and allocations of other
costs and expenses related to, the Multifamily and Industrial
Operations transferred by Realty to Pacific, and the operations of
Baldwin Industrial Park, for the respective quarter ended March 31.
(2) Estimated quarterly distributions to be received on Realty's
investment in Pacific ($.39 per common share) less the amount of
such distributions estimated to represent the return of capital
($.14 per common share).
(3) Elimination of interest expense on real estate and other loans
payable repaid or assumed by Pacific.
(4) Elimination of minority interest in earnings of joint ventures
resulting from Realty's acquisition of the Partnership interests
and subsequent transfer to Pacific.
17.
<PAGE>
Item 2. Managements' Discussion and Analysis of Financial Condition and Results
of Operations
SANTA ANITA REALTY ENTERPRISES, INC.
The following narrative discusses Realty's results of operations for the three
months ended March 31, 1994 and 1993, together with liquidity and capital
resources as of March 31, 1994.
Results of Operations
- - - ---------------------
For the three months ended March 31, 1994, Realty's revenues were derived
principally from the rental of real property and interest on investments.
Total revenues were $15,803,000 compared with $18,876,000 reported for the
comparable quarter of 1993, a 16.3% decrease. The lower 1994 revenues were
primarily due to the fact that Realty sold its multifamily and industrial
operations to Pacific Gulf Properties ("Pacific"), formerly a wholly-owned
subsidiary, in February, 1994 and nonrecurring interest earned on a California
Franchise Tax Board refund received in 1993. The sale to Pacific is discussed
in Note 6.
Rental revenue from real estate properties accounted for $15,433,000 of the
total revenues for the three months ended March 31, 1994, a 4.8% decrease from
the $16,209,000 recorded for the first quarter of 1993.
The most significant source of rental revenue is the lease of the Santa Anita
Racetrack. Revenues for the three months ended March 31, 1994 were $7,791,000,
an increase of 8.7% from the $7,168,000 reported for the three months ended
March 31, 1993. The increase in rental income resulted from more race days.
The lease with LATC for Santa Anita Racetrack expires in December, 1994. It is
anticipated by management that the lease will be renewed on terms which, in
light of Operating Company's declining profitability, may result in reduced
revenue to Realty.
Rental revenues from other real estate investments for the three months ended
March 31, 1994 were $7,642,000, a decrease of 15.5% from those reported in the
comparable period of 1993 of $9,041,000. The 1994 decrease is due primarily to
the February 1994 sale by Realty of its multifamily and industrial operations
to Pacific.
Interest and other income decreased 86.1% to $370,000 for the three months
ended March 31, 1994 from $2,667,000 reported for the three months ended March
31, 1993. The decrease is primarily attributable to $2,284,000 of interest
income reported in the first quarter of 1993 from a tax settlement with the
California Franchise Tax Board.
Costs and expenses of $9,739,000 for the three months ended March 31, 1994
decreased 6.4% from those reported for the first quarter of 1993 of
$10,400,000. The decrease is primarily due to the disposition of the
multifamily and industrial operations offset by minor increases in general and
administrative expenses associated with the sale noted above.
Net income for the three months ended March 31, 1994 was $6,064,000, a
decrease of 39.0% compared with the $9,934,000 reported for the comparable
period in 1993. The decrease in net income was due to the factors described
above in addition to a $1,458,000 income tax benefit reported in the first
quarter of 1993.
18.
<PAGE>
Item 2. Managements' Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources
- - - -------------------------------
Realty had liquidity available from a combination of short-and long-term
sources. Short-term sources include cash and short-term investments of
$20,581,000 at March 31, 1994.
In connection with the sale of properties to Pacific, Realty paid down its
lines of credit by $44.3 million and transferred to Pacific $44.4 million of
indebtedness associated with the apartment and industrial properties.
As of December 31, 1993, Realty was not in compliance with certain covenants
contained in its credit agreements. Realty's lenders waived such noncompliance
through April 30, 1994, conditioned among other things, on no additional
borrowings under the credit agreements. Realty is currently in the process of
negotiating an extension of the waivers and revised credit agreements with its
lenders. Management is of the opinion that Realty will have sufficient
liquidity from other sources during the renegotiation period.
Prior to the declaration of Realty's next quarterly dividend, the Board of
Directors will consider whether Realty's current quarterly dividend of $.34
per share continues to be in the best long-term interests of the shareholders,
taking into consideration a number of factors including Realty's operations
subsequent to the completion of the Pacific transaction, the current bank
negotiations and potential alternative uses of available cash including the
development of existing assets. This determination may require a reduction in
Realty's current dividend level.
Realty had approximately $22,537,000 of long-term receivable at March 31, 1993
with maturities ranging from 1994 to 2002. For the three months ended March
31, 1994, long-term receivables earned interest income of $370,000.
In the opinion of management, as of March 31, 1994, Realty's real estate
investments had a market value substantially in excess of the historical costs
and indebtedness related to such real estate investments. Management believes
that this provides significant additional borrowing capacity.
19.
<PAGE>
Item 2. Managements' Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Operating Company is engaged in thoroughbred horse racing through its wholly-
owned subsidiary, Los Angeles Turf Club, Incorporated ("LATC"), which leases
the Santa Anita Racetrack ("Santa Anita") from Realty.
The following narrative discusses Operating Company's results of operations
for the three months ended March 31, 1994 and 1993, together with liquidity
and capital resources as of March 31, 1994.
Results of Operations
- - - ---------------------
Operating Company derives its revenues primarily from thoroughbred horse
racing activities. For the three months ended March 31, live thoroughbred
horse racing at Santa Anita Racetrack totaled 66 days in 1994 compared with 64
days in 1993. On-track attendance in the first quarter of 1994 was down 2.8%
from the comparable year ago period while average daily attendance declined
5.8%. Total wagering and average daily wagering increased 17.2% and 13.7%,
respectively, in the first quarter of 1994 compared with the year ago quarter.
On-track wagering, inter-track wagering and interstate wagering increased .9%,
8.9% and 82.4%, respectively, in the first quarter of 1994 compared with the
year ago quarter, primarily attributable to an increase in racing days for the
first quarter of 1994 compared with the year ago quarter. The increase in
interstate wagering is primarily attributable to an increase in the number of
interstate wagering locations.
Total revenues and direct operating costs increased in the first quarter of
1994 compared with the year ago quarter due to an increase in race days and
wagering at Santa Anita. Total revenues in the first quarter of 1994 were
$34,466,000, up 2.3% from the restated revenues of $33,681,000 for the
comparable year ago period. Direct horse racing operating costs in the first
quarter of 1994 were $20,917,000, up 1.5% from $20,613,000 for the comparable
year ago period.
Food and beverage revenues and cost of sales were lower in the first quarter
of 1994 compared with the year ago period due to the decline in attendance and
lower per capita spending. As a percentage of sales, cost of sales increased
to 29.2% in the first quarter of 1994 compared with 27.5% in the first quarter
of 1993.
General and administrative expenses were $3,060,000 in the first quarter of
1994, down 7.7% from the $3,314,000 from the comparable year ago period,
primarily due to administrative staff reductions. Interest expense decreased
to $106,000 in the third quarter of 1994 from $145,000 in the first quarter of
1993. Rental expense to Realty was $7,503,000 for the first quarter of 1994
compared with $6,913,000 reported in the first quarter of 1993. The increase
in rental expense of 8.5% reflects the overall increase in wagering.
Operating Company reported net income of $39,000 or less than $.01 per share
in the first quarter of 1994 compared with a restated net loss of $97,000 or
$.01 per share in the first quarter of 1993 primarily due to the revenue and
expense items previously discussed.
20.
<PAGE>
Item 2. Managements' Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Seasonality
- - - -----------
Operating Company's operations are subject to seasonal fluctuations. Operating
Company recognizes the majority of its revenues in the first quarter due to
live racing activity at Santa Anita. Therefore, the results of operations for
interim periods are not necessarily indicative of the results that may be
expected for the full year.
Liquidity and Capital Resources
- - - -------------------------------
At March 31, 1994, Operating Company's sources of liquidity included cash and
short-term investments of $28,169,000 and an unsecured line of credit with
Realty of $10,000,000, of which approximately $3,100,000 was utilized in
connection with a guarantee of a capital lease. Operating Company's ability to
utilize Realty's line of credit is dependent upon Realty's liquidity and
capital resources. As a result of Realty's noncompliance with certain
covenants contained within its credit agreements, Realty is currently unable
to borrow additional moneys under its lines of credit. Accordingly, borrowings
by Realty under these agreements would not provide a source of liquidity for
Operating Company. Realty is in the process of renegotiating its credit
agreements. (See Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations - Realty - Liquidity and Capital
Resources). For the three months ended March 31, 1994, short-term investments
earned interest income of $93,000.
The cash balances and related interest income from short-term investments
reflect seasonal variations associated with the Santa Anita meet. During the
meet, large cash balances and short-term investments are maintained by LATC,
including amounts to be disbursed for payment of license fees payable to the
state, purses payable to horse owners and un-cashed winning pari-mutuel
tickets payable to the public.
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. and
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 1994
PART II OTHER INFORMATION
Item 3. Defaults on Senior Securities
As described in Managements' Discussion and Analysis of
Financial Condition and Results of Operations Santa Anita
Realty Enterprises, Inc. -Liquidity and Capital Resources, at
December 31, 1993, Realty was not in compliance with certain
financial covenants contained in its credit agreements,
although Realty's lenders did waive such noncompliance through
April 30, 1994. The indebtedness consists of approximately $36
million of revolving credit debt owed to three commercial
banks. Realty is in the process of negotiating an extension of
the waivers and is also negotiating revised credit agreements
with the lenders.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K filed in the first quarter of 1994:
Form 8-K dated February 18, 1994 filed by Realty reporting on
the Disposition of its Multifamily and Industrial Operations.
22.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Operating
Company and Realty have duly caused this report to be signed on their behalf
by the undersigned thereunto duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By /s/ Sherwood C. Chillingworth By /s/ Stephen F. Keller
----------------------------------- ----------------------------------
Sherwood C. Chillingworth Stephen F. Keller
Vice Chairman of the Board and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)
Dated: May 13, 1994 Dated: May 13, 1994
------------------- -------------------
By /s/ Brian L. Fleming By /s/ Richard D. Brumbaugh
----------------------------------- ----------------------------------
Brian L. Fleming Richard D. Brumbaugh
Executive Vice President and Chief Vice President-Finance
Financial Officer (Principal Financial and Accounting
(Principal Financial and Accounting Officer)
Officer)
Dated: May 13, 1994 Dated: May 13, 1994
------------------- -------------------
March 31, 1994
Form 10-Q
